I think the market is superior to “the government” in every way (of course!), but am trying to condense it all down to the fundamental reasons. After weeks or months of thought, I’m just coming up with two reasons:
Am I missing something, or does everything boil down to one of these two?
"What most people are objecting to is that the market gives people what the people want, instead of what the person talking thinks the people ought to want."
-Milton Friedman
(but yeah, I think you got it)
Not everyone deems natural rights as self-evident, so that line of reasoning won't work all the time.
Markets are moral/ethical because they are voluntary.
I also reject the premise that government is an adequate substitute for market and can even be compared to market. Governments need the market even if they interfere or limit it. Governments without the market die a horrible death. The more appropriate comparison is free markets versus limited markets.
A practical example of free market superiority is the existence of black markets in limited market societies. If the limited market were superior, then there would be no need for a black market. Black markets exist because of the inferiority of the limited market.
I think it mostly has to do with the fact that government action is desensitized from profit and losses. If they can just dip into the never-ending pool of taxpayer money, they can mostly fund whatever they want without having to make it productive. So the government provides "services", but these "services" are often crappy because of an incentive problem. Of course they could lose their jobs and that may provide motivation, but their jobs are decided by bureaucracy and not consumers. "Consumers" can vote on people who may or may not change the bureaucracy once every two or four years whereas if you are upset with a product, you stop buying it tomorrow. In other words, the market is much more responsive. Somebody could say that voting would be an effective check on government power, but the time that elapses between governments and the fact that they can get away with things most people disagree with (like the Iraq War) suggests that the people don't actually have the power although democracy gives them that illusion.
Oh yeah, and usually they don't throw you in a cage if you don't want to buy their products. That helps.
I say it depends on three, closely related, problems: incentives, information and calculation. You've defined economic calculation broadly enough that it almost encapsulates the problem of government incentives, as compared to incentives under a voluntary arrangement and particularly the profit-and-loss test of the market. The state must also rely on poor information 'signals' in determining the efficacy of their choices (from the POV of the purported benefactors). If a coffee shop sells out of its blueberry scones, that's a pretty clear signal that people really like their blueberry scones, and they ought to make more of them. If a politician, who is asked his opinion on an ever-growing list of political issues, is elected by 60% of voters, that says... what? That people like his views on foreign policy? Or is it his drug policy? What if it's his position on hard drugs but not on marijuana? Opinion polls aren't much better, because what people say need not line up with what they would do. Those polled may say a new stadium is a great idea, but if told they need to pull $1000 from their personal savings and give it to the stadium project, their answer may be different.
I generally stay away from moral arguments, though I will make the exception that the market has incentives which promote peaceful cooperation, whereas the state engenders conflict and violence. I assume most everyone prefers peace to violence, cooperation to in-fighting, so I think this argument is much handier than appeal to something like natural rights.
I agree with those who state not everyone will find the natural rights arguments persuasive.
K.C. Farmer wrote the following post at Wed, Aug 10 2011 10:11 AM:
Excellent observation; the market is natural and can never be completely abolished.
Michael J Green wrote the following post at Wed, Aug 10 2011 11:07 AM:
I say it depends on three, closely related, problems: incentives, information and calculation. You've defined economic calculation broadly enough that it almost encapsulates the problem of government incentives...
Thanks- I wondered if I was doing something like that. I'll have to give this more thought.
Hey,
I wondered the same thing not that long ago, I kept looking and investigating and it really seemed as though the market was the best solution every time. Then something came to me and it was this: if the market was the best in every case because of the specific factors of that case then this would mean that there was no overriding reason why it is that the market was a superior system. Although this was the opposite of what I wanted to hear I may have accepted it if it weren't for one thing: Why was the market already superior in so many instances? How could this be a coincidence?
So there is one major factor and two minor factors here. All of these are in terms of economic efficiency however; I'm among the crew who believes natural rights are bunk.
The major factor takes us back to the beginning, it takes us all the way back to Adam Smith and his argument that people will mutually benefit through trade because of the fact through mutual self interest the buyer will buy what he value most and the seller will sell what he values least, thusly we can see that both individuals benefit. This creates the invisible hand; it creates a mutual string of exchanges and valuations all of which reward individuals for satisfying the wants of their fellow men. It not only creates this incentive bu it will have a tendency to root out any individual or groups of individuals who fail to do this, most importantly through this will to satisfy the wants of consumers a medium of exchange arises and there is suddenly a way to rationally economically calculate what is most wanted by actual people, not what they say that they want. There are a few other essential elements to this system: entrepreneurship and the ability of every individual with a good idea to enter the market, consumer sovereingty and the ability of every consumer to spend what he wants where he wants, profit and loss to guide resources into those areas of the most importantly held wants, rational investment which leads to long run healthy growth, and freedom of mobility and movement to trade on any market.
The scary thing is that the government impedes on all of these things in one way or another.
So then I have some minor factors
The main alternative, government, has the opposite of the market incentive. It has no way to rationally calculate (unless it runs itself like a business in which case the money would either have probably had money lent to it anyway or else the risk was not worth the amount of money it took), it cannot determine success or failure through any calculative means (unless run like a business but even then it will either often restrict competition or bail itself out), it does not reward successful individuals, in a representative democracy it is only interested in short term benefits, and it's open to every political fancy of the time. It's pretty much madness.
Thusly in the vast majority of cases where the government COULD run itself properly, in cases of natural monopoly, it has very little reason to do so. This is where my idea of social entrepreneurship comes into play although it's existed long before.
Entrepreneurs are individuals who take risk in order to fulfill their goals, they are pioneers, creators, risk takers. When we think of them however we usually think of financial and capitalistic entrepreneurs. There is no reason why we should only think of this kind of entrepreneur, why not social entrepreneurs who try to look out for perceived interests of society and not for profit? Then I realized that social entrepreneurs exist, but for the most part they are swallowed up by government and almost all of the above problems apply. Either those eager to aid society join some government apparatus or they never emerged because they believed that problems in society are being taken care of by the government. This is why the government must be done away with altogether or marginalized as much as possible. In its absence there would be social entrepreneurs who will attempt to help those who they and other consumers feel are not helped enough by the normal capitalistic system. This is how for instance; charities are formed and other non-profit organizations. If government did not exist or was minimal the ranks of these organizations would swell.
Thusly any "natural monopoly" problems can be dealt with by social entrepreneurs as much as possible, they can be the ones who attempt to lower these prices either by buying roads or by paying entrepreneurs to lower price or ECT. The difference between these organizations and government organizations is that there would be nothing forcing people to pay into them, people could choose which organization they would wish to support and thusly competition could emerge between these organizations to satisfy consumer demand, they would have budgets and therefore could not spend dramatically, and so bureaucracy and the like would all be kept to a minimum for this reason.
So the market is superior for one main reason: The fact that through exchange it creates a system in which people are rewarded for serving others in the most efficient way possible. It is also superior for two other less important reasons, the first of which is that government has no incentive or even ability to do anything the market does, and secondly that it also allows people to produce in whatever way they see fit in a still competitive and voluntary environment in order to satisfy what they see as social wants.
Other Random Thoughts
People criticize the market for being too individualistic. I sometimes criticize it for being too collectivistic, it forces the strongest and most capable members of society to satisfy the wants of others if they want to live as well as they could or continue on indefinitely, the greatest and most special members of society are forced to yield to the will of the masses.
Similarly to democracy, capitalism is production for the masses, but it has one major difference in this respect, and that is that it is production for everyone, not just the masses and not just with a one size fits all solution. As long as there's a large enough market for it, it will come into existence, you don't have to have a model T and it need not be black, you can have whatever you want. Government is infamous for only giving you the black model T.
The choice is up to society, to choose between inefficient force and efficient voluntarism.
I believe point 1 is more important than point 2. However, I don't think we need (or should desire) a natural-rights foundation for point 1.
The big thing on point 2 is profit-and-loss. Prices are also important but they are ancillary. The key issue is that unprofitable businesses go bankrupt. The USPS lost $2 billion in one year a few years back. No private business could survive such hemorrhaging losses (unless, like GM or your average defense corporation, it is politically-connected to the point of being quasi-public).
In the market, waste is severely punished. Essentially, you ahve to pay out of pocket to waste. In the public sector, waste is subsidized. If a US Federal bureaucrat makes a decision that wastes a million dollars, the cost to you and me is less than a penny. If he wastes a billion dollars, the cost to you and me is around $10. This doesn't make me happy but it doesn't outrage me either. But the fact that a billion dollars has been wasted is not changed by the fact that the costs of that waste are spread thinly over millions of taxpayers.
Clayton -
It ties in with a radically empirical approach to things while covering the subjective ontology, what power/ability actually are, a world in constant motion and change, and neodarwinian biology. It is the linchpin to understanding sociology and maybe even psychology (maybe), and it shows the actual ontological utilitarian nature of the way things actually work, come about, and are thought about. It bypasses such concerns like individualism / collectivism egoism / personhood, or whatever because to focus on such words is irrelevant nonsense.
The market demonstrats that we are beyond good and evil, and instead are social beings who assert our wills to achieve mutual benefit, rather than kill each other. The more people produce, the easier the power one has to achieve ones ends, the more people benefit from each other, the more obvious the process becomes, which leads to more people producing - because we are naturally more or less social beings seeking to benefit off each other.
"As in a kaleidoscope, the constellation of forces operating in the system as a whole is ever changing." - Ludwig Lachmann
"When A Man Dies A World Goes Out of Existence" - GLS Shackle
the actual ontological utilitarian nature of the way things actually work
Hmmmmmmmmmmm.....
vive la insurrection: The market demonstrats that we are beyond good and evil, and instead are social beings who assert our wills to achieve mutual benefit, rather than kill each other. The more people produce, the easier the power one has to achieve ones ends, the more people benefit from each other, the more obvious the process becomes, which leads to more people producing - because we are naturally more or less social beings seeking to benefit off each other.
Very good post.
I think you pretty much got it in a nutshell, buddy! I think it maybe could be added that an inherent aspect of free markets is that productive resources tend to be devoted to turning out those goods and services that are most valued by the consuming public, whereas with government productive resources are diverted from that end, and instead are devoted to turning out those goods and services that the political class values most -- and the political class tends to be dominated by the most megalomaniacal, most unscrupulous, and most sociopathic that society has to offer. But all that is really more a function of what you've already stated in (2), than it is a distinct point in it's own right.
Thanks- as someone else also pointed out- perhaps #2 needs to be divided up into multiple points. Not sure of the best way to do that yet.
Thanks to everyone who has particpated in the discussion!